ASSETS

General - Total assets of the Company decreased by $4.5
million from $158.0 million at December 31, 1999, to $153.5 million
at December 31, 2000. The decrease was primarily due to the net
effects of a $12.2 million decrease in mortgage-backed securities
partially offset by a $4.4 million increase in loans receivable
and a $1.6 million increase in collateralized mortgage obligations.
The purpose of the sale of the majority of the mortgage-backed
security portfolio was twofold, (1) create liquidity for loan
originations and additional stock buybacks and (2) reposition
some of the Companys investments in response to changing
interest rates.

Cash and Cash Equivalents - Cash and cash equivalents,
consisting of interest and non-interest bearing deposits and Federal
Funds Sold, increased $.9 million, or 36%, from $2.5 million at
December 31, 1999, to $3.4 million at December 31, 2000. Cash
and cash equivalents are utilized in the daily operations of the
Company. The Company maintains cash and cash equivalents sufficient
to meet the daily operational needs of the bank including, but
not limited to, operating expenses, loan funding, deposit withdrawals
and investment purchases. The Company also maintains positions
in mutual funds that are invested mostly in mortgage-based products.
These funds carry one-day availability and supplement the yield
of overnight Federal Funds Sold and interest-bearing deposits
in other financial institutions such as the Federal Home Loan
Bank.

Loans Receivable, Net - Loans receivable, net, increased
by $4.4 million, or 6%, from $70.1 million at December 31, 1999,
to $74.5 million at December 31, 2000. The primary change in the
loan portfolio was a $3.7 million increase in loans on 1-4 family
dwellings, from $67.4 million in 1999 to $71.1 million in 2000.
In the fall of 2000, the Company began offering commercial loans
and was able to originate $.4 million in such loans. Consumer
loans continued to decrease. Because of a slowdown in the local
real estate market and the increase in interest rates, there was
only a 6% growth in the loan portfolio in 2000 as compared to
the 10% growth in 1999.

Investment Securities - Investment securities increased
$.5 million, or 5%, from $10.5 million at December 31, 1999, to
$11.0 million at December 31, 2000. The Companys investment
securities consist of United States Treasury and Agency issues,
short-term mutual funds consisting primarily of qualified thrift
investments, Federal Home Loan Mortgage Corporation (FHLMC) common
and preferred stock and other equity investments. During 2000,
because of its low dividend yield, the Company sold 10,000 shares
of its FHLMC common stock at gain of $.4 million. The Company
also purchased $3.5 million of FHLMC Preferred Stock. The FHLMC
preferred stock purchased contained call options varying from
three to seven years and coupons varying from 5% to 6%. Seventy
percent of the dividends for the FHLMC preferred stock are tax
free, boosting the effective yield of this investment. During
2000, the Company charged-off $.2 million of its Intermediate
Mortgage Fund as it liquidated $2.4 million of this investment
to fund the liquidity needs of the Company.

Mortgage-Backed Securities - Mortgage-backed securities
decreased $12.2 million, or 75%, from $16.3 million at December
31, 1999, to $4.1 million at December 31, 2000. In 2000 the Company
sold $10.6 million in mortgage-backed securities which resulted
in a realized net loss of $.3 million. The Company completed these
transactions to generate cash for loan growth, for stock repurchases
and for new investment opportunities. At December 31, 2000 and
1999, all of the Companys mortgage-backed securities were
FHLMC, FNMA, or GNMA issued instruments. FHLMC and FNMA are enterprises
sponsored by the Federal government while GNMA securities represent
direct obligations of the Federal Government.

Collateralized Mortgage Obligations - The Company investment
in Collateralized Mortgage Obligations (CMOs) is limited to first-tranche
Real Estate Mortgage Investment Conduits (REMICs) which pay monthly.
REMICs are multiple class mortgage-backed securities whereby an
underlying pool of mortgages held by the issuer serves as collateral
for the debt. The Company has REMICs issued by FNMA, FHLMC and
"AAA" rated non-governmental agencies. The Company has
found these instruments to be ideal for its wholesale growth strategy
due to their regular repayment schedules and attractive yields.
The expected life of these REMICs varies from two to fifteen years.
Most of the investment in CMOs was funded by advances from the
Federal Home Loan Bank. During 2000, the Companys investment
in CMOs increased $1.6 million, or 3%, from $52.1 million at December
31, 1999, to $53.7 million at December 31, 2000.

LIABILITIES AND STOCKHOLDERS EQUITY

General - The Companys deposits, borrowings and
equity represent sources of funds for its various investments
and operating needs.

Deposits - The Companys deposits decreased $.3
million, or 1%, from $59.2 million at December 31, 1999, to $58.9
million at December 31, 2000. The change was due to the net result
of a $.7 million decrease in certificates of deposit, a $2.8 million
decrease in passbook savings accounts and a $3.2 million increase
in demand deposit accounts. Late in 1999, the Company began offering
checking accounts and installed automated teller machines (ATMs)
at all of its locations. During 2000, the Company began offering
NOW accounts.

Borrowings - The Companys borrowings increased
$.2 million, from $54.0 million at December 31, 1999 to $54.2
million at December 31, 2000. The Companys borrowings consist
of fully amortizing, balloon and "bullet"(interest only until maturity) advances from the Federal
Home Loan Bank of Dallas which mature between 2001 and 2008. These
borrowings represent the continuation of the Companys wholesale
growth strategy of leveraged investing.

Stockholders Equity - Stockholders equity
decreased $5.7 million, or 13%, from $43.5 million at December
31, 1999, to $37.8 million at December 31, 2000. The net decrease
was due to the net effects of stock buybacks of $8.6 million,
net income of $1.2 million, $.8 million in dividends paid, an
increase in accumulated other comprehensive income of $1.9 million
along with other minor adjustments.

Treasury Stock - During 2000, the Company repurchased
679,600 shares of its common stock for $8.6 million or an average
price of $12.65 per common share. Since the inception of its stock
buyback program in 1998, the Company has repurchased 1,469,654
shares of its common stock at an average price of $13.99 per common
share or $20.6 million, contributing to the enhancement of shareholder
value. At December 31, 2000, the book value was $19.20 per common
share. This compares to a book value of $16.44 per common share
at December 31, 1999.

COMPARISON OF RESULTS OF OPERATIONS

General - The Company reported net income of $1.2 million,
$1.4 million and $1.4 million for the years ended December 31,
2000, 1999, and 1998. The results for 2000 reflected generally
the same results from 1999 offset by the net loss on sale of securities
experienced in 2000. The earnings of the Company increased to
$.60 per common share. The results of operations and earnings
have been impacted through the continued stock repurchases of
the Company. During the last three years the Company has repurchased
$20.6 million of its common stock, with the largest portion ($8.6
million) being repurchased in 2000 when the Company reached the
three year anniversary of its initial public offering and became
free of many of the restrictions regarding stock repurchases.

Interest Income - Interest income increased $.6 million,
or 6%, from $10.7 million in 1999 to $11.3 million in 2000. Overall
results for 2000 reflected a yield of 7.42% on average earning
assets of $151.7 million compared to average earning assets of
$150.3 million in 1999 yielding 7.09%. Interest on CMOs
increased $.9 million, or 31%, in 2000 to $3.8 million as compared
to $2.9 million in 1999. For the fifth consecutive year, interest
on loans increased, from $5.3 million in 1999 to $5.8 million
in 2000. This increase of $.5 million represented growth of 9%.



The yield on loans receivable decreased from 7.99% in 1999
to 7.96% in 2000. This, however, was offset by an increase in
the average balance of net loans receivable of $5.9 million from
1999 to 2000. The drop in yield of the loan portfolio of only
three basis points marks the end of many years of double-digit
decreases. The "leveling out" of the yield of the loan
portfolio was due to rising interest rates and the liquidation
of many loans originated in the 1980s which had always skewed
the arithmetic average yield upward.

Interest income on investment securities decreased $.6 million,
or 60%, from $1.0 million in 1999 to $.4 million in 2000. The
yield on investment securities went down from 6.30% in 1999 to
5.71% in 2000. The reduction in yield was due to the Companys
increased investment in mortgage-based mutual funds and FHLMC
common stock compared to the Companys portfolio of U.S.
Treasury and Agency securities. The Companys portfolio of
U.S. Treasury and Agency securities yields approximately 7.25%
and consists primarily of securities purchased at least three
to four years ago when interest rates were significantly higher
than present rates. The Companys mortgage-based mutual funds
typically yield between 5.5% and 6.0% and act as a short-term
investment for the Company. The FHLMC common stock carries a dividend
yield to the Company of approximately 3%. The average balance
of investments decreased $8.0 million, or 52%, from 1999 to 2000.
The decrease in balance was due to the Companys redemption
of some of its holdings in short-term mutual funds, calls of agency
bonds and the sale of 10,000 shares of FHLMC common stock. As
mentioned earlier this sale resulted in a realized gain of $.4
million.





|                             |                                    | For the Years Ended December 31,
|---------------------------- | ---------------------------------- | --------------------------------
|                             |                                    | 2000                            
|                             |                                    | Average                         
|                             |                                    | Balance                         
|Interest Earning Assets      |                                    |                                 
|                             | Loans Receivable                   | 72,744                          
|                             | Mortgage Backed Securities         | 11,985                          
|                             | Investment Securities              | 7,432                           
|                             | Collateralized Mortgage            |                                 
|                             |                                    | Obligations                     
|                             | Other Interest Earning Assets      | 6,421                           
|                             | Total Interest Earning Assets      | 151,718                         
|                             | Non Interest Earning Assets        | 1,752                           
|                             | TOTAL ASSETS                       | 153,470                         
|                             |                                    |                                 
|Interest Bearing Liabilities |                                    |                                 
|                             | Passbooks Deposits                 | 18,957                          
|                             | Certificates of Deposits           | 39,151                          
|                             | Borrowings                         | 53,944                          
|                             | Total Interest Bearing Liabilities | 112,052                         
|                             | Non Interest Bearing Liabilities   | 1,238                           
|                             | TOTAL LIABILITIES                  | 113,290                         
|                             | Retained Earnings                  | 40,180                          
|                             | TOTAL LIABILITIES AND              |                                 
|                             |                                    | RETAINED EARNINGS               
|                             |                                    |                                 
|Net Interest Earning Assets  | 39,666                             |                                 
|Net Interest Income          |                                    | 5,387                           
|Net Interest Spread          |                                    |                                 
|Net Interest Margin          |                                    |                                 

Interest on Mortgage-backed securities decreased $.5 million
from $1.3 million in 1999 to $.8 million in 2000. This represents
a decrease of 27%. While the yield increased in 2000 to 6.68%,
compared to 6.53% in 1999, the average balance decreased $7.1
million from $19.1 million in 1999 to $12.0 million in 2000, accounting
for the decrease in income. The Company sold $10.6 million in
mortgage-backed securities at a loss of $.3 million. The cash
generated from the sale was used for stock repurchases, alternate
investments and the funding of mortgage loans. The Companys
divestment in mortgage-backed securities and investment in CMOs
can be explained by comparing the yield of these two investment
vehicles. In 2000, the Companys CMOs yielded 7.15% while
the mortgage-backed securities yielded 6.68%.

The $.9 million increase in interest on CMOs resulted
from the increase in yield from 6.44% in 1999 to 7.15% in 2000
and the increase in average balance from $44.5 million in 1999
to $53.1 million in 2000. Interest on CMOs was $3.8 million in
2000 compared to $2.9 million in 1999.

Interest income from other interest earning assets approximately
doubled from $.2 million in 1999 to $.4 million in 2000, which
resulted from the Company maintaining higher average balances
in Federal Funds Sold and other interest bearing deposits in other
financial institutions and the higher interest rates paid thereon.
The yield on other interest earning assets was 7.02% on an average
balance of $6.4 million in 2000, compared to 5.25% on an average
balance of $4.5 million in 1999. The yield in 2000 included a
special one-time dividend paid on the Federal Home Loan Bank stock.
The Company currently has $3.1 million in Federal Home Loan Bank
stock.



RATE/VOLUME ANALYSIS

The following table shows the extent to which changes in interest
rates and changes in volume of interest-related assets and liabilities
affected interest income and expense during the periods indicated.
For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year
rate) and (ii) changes in rate (change in rate multiplied by prior
year volume). The combined effect of changes in both rate and
volume has been allocated proportionately to the change due to
rate and the change due to volume.









|                      | 12/31/00 to 12/31/99 | 12/31/99 to 12/31/98
|--------------------- | -------------------- | --------------------
|                      | Rate                 | Volume              
|Interest Income       |                      |                     
|                      | Loans                | (20)                
|                      | MBS                  | 31                  
|                      | Invest               | (91)                
|                      | CMO's                | 319                 
|                      | Other                | 76                  
|                      |                      |                     
|Total                 | 315                  | 289                 
|                      |                      |                     
|Interest Expense      |                      |                     
|                      | Savings/NOW's        | 2                   
|                      | Certificates         | 186                 
|                      | Borrowings           | 154                 
|                      |                      |                     
|Total                 | 342                  | 312                 
|                      |                      |                     
|Increase(Decrease) in |                      |                     
|                      | Net Interest Income  | (27)                

Interest Expense - Interest expense increased $.7 million,
or 13%, from $5.2 million in 1999, compared to $5.9 million in
2000. Interest on FHLB advances increased $.5 million to $3.2
million in 2000 compared to $2.7 million in 1999. The increase
was due to the rise in market rates dictated by the Federal Reserves
three rate increases enacted during 2000. The cost of the Companys
FHLB advances were 5.95% in 2000 compared to 5.62% in 1999. The
average balance of borrowings was $53.9 million in 2000 compared
to $47.6 million in 1999. Interest expense on the Companys
retail deposits increased $.2 million to $2.7 million in 2000,
compared to $2.5 million in 1999. While the cost of passbook savings
was unchanged, the cost of the Companys certificates of
deposit increased to 5.35% in 2000 compared to 4.88% in 1999.
The Companys overall cost of funds for 2000 was 5.24% on
average interest-bearing liabilities of $112.1 million. This compares
to a cost of funds of 4.85% on an average balance of $107.7 million
in 1999.

Provision for Loan Losses - The Company had provision
for loan losses of $7,000 in 2000 compared to $6,000 in 1999.
Provisions for loan losses are required either when the Company
experiences growth in its loan portfolio or charges loans off.
Provisions for loan losses are charged to earnings to bring the
total allowance for loan losses to a level considered appropriate
by management based on a quarterly review of the performance of
individual loans and the condition of the underlying collateral.
Management utilizes a certain percentage of the entire mortgage
loan portfolio given the current economic conditions in determining
an adequate allowance for loan loss. The Company employs the reserve
method of accounting for its allowances for loan losses.

The allowance for loan losses is reduced by loans charged off.
For the three years ended December 31, 2000, 1999 and 1998 the
Company had charge-offs of $11,000, $50,000, and $0. This low
level of charge-offs could continue as long as the local economy
remains strong with relatively low unemployment. Due to the Companys
policy of requiring cash equity for all mortgage loans, the Company
does not anticipate any material adverse effect on its results
of operations in the event of a downturn in the local economy.

Non-Interest Income - Non-interest income for 2000 was
($.1) million, resulting from the net loss on the sale or redemption
of the Companys various investments (FHLMC common stock,
mortgage-backed securities and Intermediate Mortgage Fund). The
Companys other income consisting of various fees and service
charges was unchanged.

Other Expenses - Other expenses increased $.1 million
from $3.3 million for the twelve months ended December 31, 1999,
compared to $3.4 million for the twelve months ended December
31, 2000. The increase was attributable to an increase in compensation
expense of $.1 million. Ad Valorem taxes decreased $.1 million
due to the reduction of shareholder equity at the subsidiary level
with recent dividends from the Association to the Company. There
were minor increases or decreases in all other expenses.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity measures the Companys ability to meet its financial
commitments and obligations on a timely basis. These commitments
and obligations include loan disbursements, savings withdrawals
by customers, the payment of dividends, cash letters and the daily
operating expenses of the Company. Liquidity management involves
the daily monitoring of cash on hand, non-interest bearing operating
accounts, overnight Federal Funds Sold, short-term investments
and the Companys ability to convert these assets into cash
without incurring a loss. Monthly paydowns on mortgage loans,
mortgage-backed securities and collateralized mortgage obligations
are anticipated and channeled to either cash on hand, overnight
Federal Funds Sold or short-term investments in order to meet
the Companys demands and maximize interest earned on these
funds.

The Companys primary sources of funds are interest and
non-interest bearing customer deposits, advances from the Federal
Home Loan Bank and maturities of its existing investments including
mortgage loans, mortgage-backed securities, investment securities
and collateralized mortgage obligations. The Company offers competitive
interest rates to maintain its core deposit base consisting of
passbook savings, checking accounts and certificates of deposit.
The Company does not utilize brokered deposits nor does it offer
special rates for "jumbo" deposits of $100,000 or more.
Gradual increases in interest rates have slowed prepayments of
many of the Companys assets during 2000. This has helped
boost yields, particularly for short-term investments and the
Companys portfolio of CMOs.

The Company, through the Association, is required under Federal
regulations to maintain certain levels of liquid investments.
Qualifying investments include United States Treasury and Federal
Agency securities and other similar instruments having maturities
of five years or less. The level of such investments may not be
less than 4% of the Associations average withdrawable obligations
as defined by the OTS. As of December 31, 2000, the Associations
liquidity stood at 57.06%, or $58.3 million in excess of the minimum
requirement.

Guaranty Savings & Homestead Association, the Companys
wholly-owned subsidiary, is required to maintain regulatory capital
sufficient to meet all three of the regulatory capital requirements,
those being tangible capital (1.5%), core capital (3.0%), and
risk-based capital (8.0%). As of December 31, 2000, the Associations
tangible and core capital amounted to $24.2, million or 16.2%
of adjusted total assets, while the Associations risk-based
capital was $24.6 million, or 39.5% of total adjusted risk-weighted
assets. Even though dividends declared and paid to the Company
have reduced the capital level of the Association, the Company
remains "well capitalized" under OTS standards. Since
the initial public offering in 1997, the Company has endeavored
to reduce its capital level through stock buybacks , retail or
wholesale asset growth and other means.

MARKET RISK ANALYSIS  ASSET LIABILITY MANAGEMENT

Qualitative Risk Analysis. The ability to maximize net
interest income is largely dependent upon the achievement of a
positive interest rate spread that can be sustained during fluctuations
in prevailing interest rates. Interest rate sensitivity is a measure
of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either re-price or mature within
a given period of time. The difference or the interest rate re-pricing
"gap" provides an indication of the extent to which
an institutions interest rate spread will be affected by
changes in interest rates. A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities, and is considered negative
when the amount of interest-rate sensitive liabilities exceeds
the amount of interest-rate sensitive assets. Generally, during
a period of rising interest rates, a negative gap within shorter
maturities would adversely affect net interest income, while a
positive gap within shorter maturities would result in an increase
in net interest income. During a period of falling interest rates,
a negative gap with shorter maturities would result in an increase
in net interest income while a positive gap within shorter maturities
would have the opposite effect. As of December 31, 2000, the ratio
of the Associations cumulative one-year gap to total assets
was a negative 23.5% and its ratio of interest-earning assets
to interest-bearing liabilities maturing or re-pricing within
one year was 48.3%.

In order to minimize the potential for adverse effects of material
and prolonged increases in interest rates on the Associations
results of operations, the Association has adopted asset and liability
management policies including an interest rate risk policy to
better enable management to match the re-pricing and maturities
of its interest-earning assets and interest-bearing liabilities.
Monthly, President Scott and Controller Bartels review the re-pricing
gap on an internal model specifically designed for the assets
and liabilities currently being held by the Association. On a
quarterly basis, the entire Board of Directors receives an interest
rate risk report which analyzes changes to the net portfolio value
("NPV") and net interest income. The net portfolio value
is the difference between the market value of the Associations
assets and the market value of the Associations liabilities
and off balance sheet commitments. The Board reviews the internal
model and a standard thrift industry model prepared by the OTS
from the Associations quarterly Consolidated Maturity and
Rate Report.

As a thrift institution, Guaranty Savings & Homestead Association
typically operates with negative gaps over the short term since
the Association is invested primarily in home mortgage loans varying
in length usually from 15 to 25 years while its longest term interest-bearing
liabilities are five-year certificates of deposit and two nine-year
balloon FHLB advances. Therefore, it is vital that the Association
manage its other investments in a manner which eliminates the
substantial negative re-pricing gap which arises from one to five
years while at the same time maximizing net interest income. This
is why the Association places much of its ready cash in short-term
investments such as mortgage-based mutual funds. These types of
investments provide the benefit of overnight availability while
producing yields approximately 50 basis points higher than overnight
Federal Funds sold. The Association also places a high emphasis
on cash flows in its portfolio of CMO REMICs. The duration
of the Associations CMO REMICs varies from two to
fifteen years.

Quantitative Risk Analysis Presented below is an analysis
of Guaranty Savings & Homestead Associations interest
rate risk as of December 31, 2000 as measured by changes in NPV
for instantaneous and sustained parallel shifts in the yield curve,
in 100 basis point increments, up and down 300 basis points in
accordance with OTS regulations. As illustrated in the table,
NPV is more sensitive to and may be more negatively impacted by
rising rates than declining rates. This occurs principally because
as rates rise, the market value of fixed-rate loans declines due
to both the rate increase and slowing prepayments. When rates
decline, the Association does not experience a significant rise
in market value for these loans because borrowers prepay at relatively
high rates. The value of the Associations deposits and borrowings
change in approximately the same proportion in rising or falling
rate scenarios.



|Change (in Basis Points) | Net Portfolio Value
    ------------------------
|------------------------ | ------------------------------------------------
|in Interest Rates        | $ Amount                                        
|                         | (Dollars in Thousands)                          
|+300                     | 10,341                                          
|+200                     | 15,995                                          
|+100                     | 22,046                                          
|0                        | 28,575                                          
|-100                     | 38,629                                          
|-200                     | 43,326                                          
|-300                     | 51,758                                          

The assumptions used by management to evaluate the vulnerability
of the Associations operations to changes in interest rates
in the table above are based on assumptions utilized in the gap
table below. Although management finds these assumptions reasonable,
the interest rate sensitivity of the Associations assets
and liabilities and the estimated effects of changes in interest
rates on the Associations net interest income and NPV indicated
in the above table could vary substantially if different assumptions
were used or actual experience differs from such assumptions.



SENSITIVITY ANALYSIS

The following table summarizes the anticipated maturities or
re-pricing of the Associations interest-earning assets and
interest-bearing liabilities as of December 31, 2000, based on
the information and assumptions set forth in the notes below.



|(Dollars in Thousands)                           | Within Three Months                       | Three to Twelve Months | More Than One Year 
    to Three Years | More 
    Than Three Years to Five Years | Over 
    Five 
    Years | Total   
|------------------------------------------------ | ----------------------------------------- | ---------------------- | -------------------------------------- | ---------------------------------------- | ------------------------- | --------
|Interest-Earning assets:                         |                                           |                        |                                        |                                          |                           |         
|                                                 | Cash and interest-earning deposits        | $                      | 3,135                                  | $                                        | -                         | $       
|                                                 | U.S. Government and Agency Securities (1) |                        | -                                      |                                          | 1,100                     |         
|                                                 | FHLMC & FHLB Stock                        |                        | 6,647                                  |                                          | -                         |         
|                                                 | Mortgage-based Mutual Funds               |                        | 6,089                                  |                                          | -                         |         
|                                                 | Mortgage Loans (2)                        |                        | 1,875                                  |                                          | 5,625                     |         
|                                                 | Commercial Loans (3)                      |                        | 99                                     |                                          | -                         |         
|                                                 | Mortgage-Backed Securities (2)            |                        | 195                                    |                                          | 588                       |         
|                                                 | Collateralized Mortgage Obligations (2)   |                        | 1,857                                  |                                          | 5,574                     |         
|                                                 | Consumer Loans                            |                        | 238                                    |                                          | -                         |         
|TOTAL INTEREST-EARNING ASSETS                    |                                           | 20,135                 |                                        | 12,887                                   |                           | 31,433  
|                                                 |                                           | =====                  |                                        | =====                                    |                           | =====   
|                                                 |                                           |                        |                                        |                                          |                           |         
|Interest Bearing Liabilities                     |                                           |                        |                                        |                                          |                           |         
|                                                 | NOW Accounts                              |                        | 2,965                                  |                                          | -                         |         
|                                                 | Passbook Savings (4)                      |                        | 3,000                                  |                                          | 9,000                     |         
|                                                 | Certificates of Deposits (3)              |                        | 8,505                                  |                                          | 20,973                    |         
|                                                 | FHLB Advances (3)                         |                        | 7,991                                  |                                          | 18,900                    |         
|TOTAL INTEREST-EARNING LIABILITIES               |                                           | 19,496                 |                                        | 48,873                                   |                           | 24,475  
|                                                 |                                           | =====                  |                                        | =====                                    |                           | =====   
|                                                 |                                           |                        |                                        |                                          |                           |         
|Excess/(deficiency) of interest-earning          |                                           |                        |                                        |                                          |                           |         
|assets over interest-bearing liabilities         |                                           | 639                    |                                        | (35,986)                                 |                           | 6,958   
|                                                 |                                           |                        |                                        |                                          |                           |         
|Cumulative excess/(deficiency) of interest-      |                                           |                        |                                        |                                          |                           |         
|earning assets over interest bearing liabilities |                                           | 639                    |                                        | (35,347)                                 |                           | (28,389)
|                                                 |                                           |                        |                                        |                                          |                           |         
|Cumulative excess/(deficiency) of interest-      |                                           |                        |                                        |                                          |                           |         
|earning assets over interest bearing liabilities |                                           |                        |                                        |                                          |                           |         
|as a percent of total assets                     |                                           | 0.42%                  |                                        | -23.38%                                  |                           | -18.78% 
|                                                 |                                           |                        |                                        |                                          |                           |         
|Ratio of interest-earning assets to interest-    |                                           |                        |                                        |                                          |                           |         
|bearing liabilities                              |                                           | 103.28%                |                                        | 26.37%                                   |                           | 128.43% 
|                                                 |                                           |                        |                                        |                                          |                           |         
|Ratio of cumulative interest-earning assets      |                                           |                        |                                        |                                          |                           |         
|to interest-bearing liabilities                  |                                           | 103.28%                |                                        | 48.30%                                   |                           | 69.42%  
|                                                 |                                           |                        |                                        |                                          |                           |         
|(1) Based on contractual maturities              |                                           |                        |                                        |                                          |                           |         
|(2) Based on 2000 average monthly withdrawals    |                                           |                        |                                        |                                          |                           |         
|(3) Includes callable securities of $.5 million  |                                           |                        |                                        |                                          |                           |         
|(4) Based on 2000 average monthly withdrawals    |                                           |                        |                                        |                                          |                           |         



IMPACT OF INFLATION

The consolidated financial statements of the Company and notes
thereto, presented elsewhere herein, have been prepared in accordance
with GAAP, which require the measurement of financial position
and operating results in terms of historical dollars without considering
the change in the relative purchasing power of money over time
due to inflation. The impact of inflation is reflected in the
increased cost of the Companys operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Company
are financial. As a result, interest rates have a greater impact
on the Companys performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in
the same direction or to the same extent as the prices of goods
and services.